Editore"s Note
Tilting at Windmills

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April 11, 2011

STILL STUCK IN THE WRONG CONVERSATION.... As this progresses, I'm likely to be drawn into the discussion as it exists, not as it should be. In response to the House Republicans' long-term debt reduction plan, President Obama will unveil his own vision, and I'll have plenty of items about its relative merit, and his effectiveness in refuting the GOP's radicalism.

But before all of that talk overwhelms the discourse, let's make one thing perfectly clear: we're having the wrong debate.

Matt Yglesias had a good item on this earlier, explaining "how crazy it is for this topic to be taking center stage on the Washington agenda."

The main problem with high levels of government debt is that in order to generate demand for bonds it might be necessary to offer investors very high interest rates. And if investors can obtain high interest rates by lending to the government, they'll demand even higher interest rates to lend to the private sector. This "crowding out" effect means that private sector investment will be lower than optimal, and enterprise that could be profitable in a lower-debt scenario are now unprofitable.

That's bad, but it's not happening today.

Another potential problem with high levels of government debt is that it's possible that central bank operations to keep interest rates low could be leading to dangerous levels of inflation. But that's not what's happening now. Expectations of future inflation are anchored slightly below the Fed's target level. The price level is well below the long-term trend and shows no sign of catching up. There's no crowding out problem and there's no inflation problem.

This should seem like common sense, but it's generally wise to match solutions to problems. If our current economic conditions featured high interest rates, high inflation, and a noticeable "crowding out" effect, we'd be having a very different conversation. Indeed, under those circumstances, the general vision touted by conservatives would at least be worthy of conversation.

But that's why we're still stuck in the wrong conversation. Inflation and interest rates are already incredibly low, and we can borrow money on the cheap. We're in the midst of a jobs crisis and need increased demand to solidify the recovery.

It's against this backdrop that the political establishment is obsessed, not with unemployment, but with ... deficit reduction? The disconnect between the establishment's conventional wisdom and legitimate public needs is breathtaking.

Steve Benen 12:40 PM Permalink | Trackbacks | Comments (18)

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The only jobs created by Republicans are theirs to explain why any woman, or poor person, or disabled person, should ever again vote for one of them.

Posted by: withay on April 11, 2011 at 12:42 PM | PERMALINK

The GOP is sabotaging the economic recovery on purpose, this false debt crisis being a large part of the strategy.

It's a simple formula:
Economic recovery = democratic gains
Democratic gains = less money for business
no economic recovery = chance to blame democrats and take control in 2012.

Posted by: citizen_pain on April 11, 2011 at 12:43 PM | PERMALINK

Well, at least I know there's no reason to get as wrapped up in the debt ceiling fight because it will have been lost before we go to the table.

Obama handed the House over to extremists when he asked for half the stimulus economists thought was needed to get the economy going. Once he decided not to "overreach" by asking for enough to improve the economy by the midterms, he chose to lose the Congress.

Obama chose to lose the government shutdown when he decided that the voters sent Dems packing because he "overreached," rather than realizing it was because he wasn't willing to fight for jobs and the economy. So he decided to tackle the deficit instead, which essentially conceded the battle long before he went to the negotiating table.

Now that he's gotten $38.5 instead of the $39 the GOP asked for the second time, he thinks his centrism has "won." So it is looking like he may very well choose to lose this next battle as well, when he decides, yet again, not to fight for jobs and the economy, but to destimulate it less, and gut the social contract more responsibly.

If this speech is about reforming entitlements and reducing the debt rather than moving the country in the wrong direction - well, it's obvious which direction the country is going to go if all sides agree it's the wrong direction.

What's worse is the GOP stands to gain the most from the failures of their policies we adopt because we will now own and champion them as our success.When they fail, the GOP will be the beneficiaries for the same reason they were in the midterms - because the only thing that matters on 2012 is what the economy is doing. And Obama and the Dems - with control of the Presidency and Senate - show know willingness to attempt to accomplish anything that will do anything but hurt the economy less than Republicans.

The debt ceiling will be won or lost in this speech, when Obama chooses to define the debate on their terms, or ours. And if one thing has become clear about Obama,his only dream for his Presidency is not some legislative accomplishment, but to have sat down with Republicans and made a deal. He'll think that's repairing the nation.

Posted by: Memekiller on April 11, 2011 at 12:47 PM | PERMALINK

I'm trying to find a rope company to invest in. After Obama's big speech, I have the sneaking suspicion that lots of DFH's will be buying up rope to hang themselves with.

Posted by: worcestergirl on April 11, 2011 at 12:51 PM | PERMALINK

Your corporations, and the media they own, dictate what you are hear and talk about. The millionaire punditry that they have hired to do their bidding is doing just that. You have a population in which 80 percent want to tax the rich in order to help your economic chaos created by the corporations and the rich. Yet not one of your millionaire pundits talk about this ever. They talk about creating yet more destruction of the middle class and the poor to pay for the sins of the rich. Even your Senators of both parties. Not one except Senator Sanders even talks about taxing the rich. So out of 100 Senators you have exactly one that is talking this way, and that one is never, ever, talked about by your corporate million dollar punditry. Your worst enemy is your corporate media starting with the Brian Williams of this world.

Posted by: blue on April 11, 2011 at 12:53 PM | PERMALINK

Republicans are not interested in deficit reduction, as should be abundantly clear from the Bush years. What they are interested in is program reduction. Not all programs mind you -- just those that do not bring large returns to the wealthy. Accountants would call it deadwood pruning. They are running government as a business.

Posted by: jeri on April 11, 2011 at 12:54 PM | PERMALINK

Republicans will also claim now that "stimulus" efforts don't work to create jobs, when the problem was actually that the stimulus was not big enough, not that it was instituted.

Posted by: former curm on April 11, 2011 at 12:54 PM | PERMALINK

I thought Obama could ride through his Presidency on healthcare alone, but it appears he's even willing to whittle that away for deal-making. I'm starting to think he may be the worst possible President America could have right now. We'd be better off in the long run with the GOP enacting this agenda.

You have to ask yourself why the GOP didn't try to be nearly so bold when they were in control of everything as they are with half of one branch of government. We all know what a price they paid when they tried to dismantle social security. It was clear then that such drastic dismantling of government can only occur when Dems are in charge.

The GOP will be able to undo far more of the social net now than they ever would have on their own by getting Obama to walk into negotiations taking a position about as extreme as they could have ever thought possible while in charge. allowing them to move to the right and make far more draconian budget the "center."

All analysis beyond this speech is meaningless - the negotiation is won or lost in Obama's speech. At that point it's all about minimizing the damage.

Posted by: Memekiller on April 11, 2011 at 12:57 PM | PERMALINK

And, I would remind everyone that Obama has very, very powerful leveredge as well - more than the GOP, even. He could call their bluff and demand a clean bill. Dare them, even taunt them into not raising the debt ceiling.Not even business would dare put them in charge again once the GOP wrecks their corporate profits to give them a few more percentages shaved from their taxes.

At that point, to do so would destroy the GOP's viability as a party for centuries. If they don't, they'll face an insurrection from their extremists.

Posted by: Memekiller on April 11, 2011 at 1:08 PM | PERMALINK

Whatever happened to that rock-jawed avatar of practical conservative wisdom, Dick Cheney, and "Reagan proved deficits don't matter"?

Honestly, "hapless" does not begin to describe the Democrats.

Posted by: bleh on April 11, 2011 at 1:11 PM | PERMALINK
The disconnect between the establishment's conventional wisdom and legitimate public needs is breathtaking.

That's because they don't know enough people among their circle of friends who are unemployed or underemployed. Most of the establishment needs to work the midnight shifts of the nearest all-night bowling alleys at minimum wage before they grok the possibility that hey maybe this whole "good jobs at good wages" thing is really important...

Posted by: PaulW on April 11, 2011 at 1:13 PM | PERMALINK

@citizen_pain I would amend your little equation by removing the second to last line and replacing it with

democratic gains = republican losses

The way you had it, line 1 and line 2 contradicted each other. Economic recovery leads to business growth, not the other way around.

Posted by: scrow774 on April 11, 2011 at 1:27 PM | PERMALINK

The fact is that most people in DC and definitely most people in the political press just Do. NOT. UNDERSTAND. ECONOMICS.

It's sad, but true.

Posted by: Four Legsgood on April 11, 2011 at 1:30 PM | PERMALINK

You patch the roof when the sun is shining. The economy is growing, so of course it is time to balance the budget.

This article doesn't make any sense. No inflation? Have you bought a gallon of gas lately? How about food prices? There's plenty of inflation out there.

Wait until the price for US government bonds collapses, and then start worrying about how to balance the budget? Why wait until disaster? Disaster-time is precisely when you want the government to be able to borrow.

Obama's own party cut him off at the knees when he tried to close Guantanamo, and he's clearly learned his lesson. Fool me once, shame on you ... but you don't let yourself get flanked on the right twice.

Posted by: boop on April 11, 2011 at 1:30 PM | PERMALINK

The ship of the American state is very, very large. The great recession will be in our tail lights before any serious deficit reduction can occur.

To be serious any deficit reduction program will require at least three components--cost reduction, revenue enhancement and full employment.

Serious cost reduction requires that we look long and hard at the DOD and its requirements. The Pentagon and Congress are shielding lots of failed projects. We have two high cost wars going no where fast.

As important we have to develop was to reduce the costs associated with health care and nursing home delivery. There are lots of ideas, but only the government is taking any of them seriously.

A third area in need of reform is the Ag Budget. We have to kill subsities for our corporate farmers.

As to revenue enhancement, I would like to see the Bush tax cuts expire--all of them. That won't happen, so the tax cuts on the wealthy have to expire as a minimum.

Finally, we have to put Americans back to work. full employment has to be our long term goal. Full employement can be achieved only if we are selling our stuff overseas. We have to stop importing as much oil. The corporate tax structure needs to be changed. I am not sure corporate taxes need to be raised. I think they definately need to be flattened. A lot of corporate lobbyists need to find honest work. The revenue code they have talked our congress into passing is ruining the nation.

I for one can't wait for the President's speech. I think it is really needed right now for him to gain the initiative.

Posted by: Ron Byers on April 11, 2011 at 1:32 PM | PERMALINK

I don't see it quite the same way most of you do.

The Republicans and their Koch backers MADE the midterms about the deficit. The Democrats and Obama therefore have had to address it.

The public has now seen the Republicans' plan and evidently don't like it too much. It wants to see higher taxes on the rich, more revenue, not more cuts.

How can this become a win for the democrats? Well turn the conversation toward the revenue side, the job creation side, and voila the end of the problem. If the progressives' budget proposal can even get half an airing that the moronic Randian fanatic budget gets, people will go for it.

Posted by: jjm on April 11, 2011 at 1:42 PM | PERMALINK

I second Ron Byers' post.

Investment in infrastructure, new techologies and the American people will result in a rejuvenated economy that could quickly erase the debt. We need to develop industries not already ceded to emerging economies and massively reduce our energy footprint.

The rich will need to provide the funds, because they're the only ones with any discretionary cash. The rest of us have to commit to keeping/finding a job, going back to school, or both.

We also need to make the big structural cuts to defense and corporate welfare. How much of these costs would it take to cover free education for those who need it? I would bet it's not as much as most people think.

Posted by: bdop4 on April 11, 2011 at 1:45 PM | PERMALINK

Look, I can understand Republicans doing this - they live off of people's fears.

But why are the ignoramous Democrats falling in line, too?

Oh, yeah, they're Corporate Whores.
My bad...

Posted by: c u n d gulag on April 11, 2011 at 1:46 PM | PERMALINK
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